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PROJECT PROCUREMENT

MANAGEMENT

Procurement Management Processes

PLAN PROCUREMENT
The process of documenting project
purchase decisions, specifying the
approach & identifying potential sellers

CONDUCT PROCUREMENT
The process of obtaining seller
responses, selecting a seller &
awarding a contract
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Procurement Management Processes

ADMINISTER PROCUREMENT
The process of managing procurement
relationships, monitoring contract
performance and making changes and
corrections as needed.

CLOSE PROCUREMENT
The process of completing each project
procurement
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Buyer
Seller
(Contract)
Project for seller

Integration Mgmt

Scope Mgmt

Time Mgmt

Cost Mgmt

Quality Mgmt

HR Mgmt

Communication Mgmt

Risk Mgmt

Procurement Mgmt
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PLAN PROCUREMENTS
INPUTS
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11.
11.

Scope
Scopebaseline
baseline
Requirements
Requirements
documentation
documentation
Teaming
Teaming
agreements
agreements
Risk
Riskregister
register
Risk-related
Risk-related
contract
contractdecisions
decisions
Activity
resource
Activity resource
requirements
requirements
Project
Projectschedule
schedule
Activity
cost
Activity cost
estimates
estimates
Cost
Costperformance
performance
baseline
baseline
Enterprise
Enterprise
environmental
environmental
factors
factors
Organizational
Organizational
process
processassets
assets

TOOLS & TECHNIQUES


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Make-or-Buy
Make-or-Buy
analysis
analysis
Expert
ExpertJudgment
Judgment
Contract
Contracttypes
types

OUTPUTS
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5.
6.
6.

Procurement
Procurement
management
managementplan
plan
Procurement
Procurement
statements
statementsof
ofwork
work
Make-or-Buy
Make-or-Buy
decisions
decisions
Procurement
Procurement
documents
documents
Source
Sourceselection
selection
criteria
criteria
Change
Changerequests
requests

PLAN PROCUREMENTS

INPUTS

Scope baseline

Requirements documentation

Project Requirements
Requirements with contractual and Legal
implications such as health, safety,
intellectual property rights etc.

Teaming agreements

Partnerships, Joint Ventures, MoUs etc.

Risk register
Risk-related contract decisions

Insurance, Performance bonds etc.


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PLAN PROCUREMENTS

INPUTS (Cont.)

Activity resource requirements


Project schedule
Activity cost estimates
Cost performance baseline
Enterprise environmental
factors
Organizational process assets
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PLAN PROCUREMENTS

TOOLS & TECHNIQUES

Make-or-Buy analysis

Available capacity
Budget constraints
Purchase or Lease

Expert Judgment

Legal assistance
Business or Technical expertise

PLAN PROCUREMENTS

TOOLS & TECHNIQUES (Cont)

Contract types

FIXED PRICE CONTRACT:


This type of contract is used where buyer can
completely describe Contract Scope of work
Buyer has least cost risk &
Risk of Higher cost is borne by Seller

Firm Fixed Price Contract (FFP)


Fixed Price Incentive Contracts (FPIF)
Fixed Price with Economic Price Adjustment
Contracts (FP-EPA)
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PLAN PROCUREMENTS

COST REIMBURSABLE CONTRACTS:

This type of contracts are often used


when the Buyer can only describe what
he wants rather tan what to do
Example: R & D Works
Buyer will have more risk than Seller

Cost Plus Fixed Fee Contracts (CPFF)


Cost Plus Incentive Fee Contracts
(CPIF)
Cost Plus Award Fee Contracts (CPAF)
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PLAN PROCUREMENTS

TIME AND MATERIAL CONTRACTS:


This type of Contracts are hybrid type of
contractual arrangements that contains both CR
& FP contracts.
These type of contracts resemble CR contracts in
that they can be left open ended & may subject
to a cost increase
They resemble FP contract arrangement where
certain parameters like Labor cost per hour,
Material rates may be fixed.

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CONTRACT TYPES
FIXED TYPE CONTRACTS [ FP]
WELL DEFINED PRODUCTS [ BUYER KNOWS WHAT HE WANTS
3 VARIANTS
FIRM FIXED PRICE -[FFP]
EX CONTRACT $100000
FIXED PRICE PLUS INCENTIVE FEE [ FPIF]
EX CONTRACT $ 10,000 . FOR EVERY DAY SAVED IN THE SCHEDULE ,
ABONUS OF $100 WILL BE PAID
FIXED PRICE PLUS ECONOMIC ADVANTAGE [ FPEA]
EX CONTRACT : $10,000 PRICE PLUS ADJUSTMENT WILL BE ALLOWED
FROM THE YEAR 2 ONWARDS BASED ON STATUTORY CHANGES IN
STEEL PRICES . IT MAY ALSO BE MAD VARIABLE FOR LABOUR COSTS ,
BASED ON CONSUMER PRICE INDEX
FPEA IS RESORTED TO GENERALLY IN LONG TERM CONTRACTS

FIXED PRICE
ADVANTAGES
CONTRACTS DISADVANTAGES
LEAST RISK FOR BUYER

SELLER MAY START


LOSING INTEREST IN
THE FACE OF LOSSES

LESS WORK TO MANAGE

SELLER WILL INFLATE


PRICE ITO COVER RISKS

SELLER FORCED TO
CONTROL COSTS

IT WOULD BE BUYERS
RESPSOSIBILITY TO
SPECIFY
REQUIREMENTS

BUYER AWARE OF
UPFRONT LIABIUTY

COST REIMBUSRIBLE CONTRACT [ CR]


CONTRACTS
3 VARIANTS
USED WHEN BUYER CAN ONLY DESCRIBE WHAT THEY NEED RATHER
THAN WHAT TO DO AND HAVE TO DEPEND ON SELLER S EXPERTISE
COST PLUS FIXED FEE [ CPFF] EX ACTUAL COSTS WILL BE REIMBUSED
ON PRODUCTION OF ORININAL VOUCHERS PLUS A FIXE FEE OF $100
COST PLUS AWARD FEE : EX ALL REASONABLE COST S WILL BE
REIMBURSED IN ADDITION TO TOTAL FEE OF $1000 WILL BE PAID IN 5
INSTALLMENTS SUBJECT TO BUYER IS SATISFIED ABOUT SELLERS
PERFORMANCE AS PER CRITERIA DEFINED IN THE CONTRACT
CAPF IS GOOD FOR SERVICE CONTRACT WHERE PROGRESS IS
SUBJECTIVELY MEASURED
COST PER INCENTIVE FEE [ CPIF] : COST + A PREDETERMINED
INCENTIVE FOR EXCEEDING THE PERFORMANCE LEVEL OR DEDUCTION
FOR SHORT FALL IN THE LEVEL SUCH AS TIME OR MONEY SAVED OR
OVERRUN
EX : CONTRCT OF $10000+ AFEE OF $100 + BONUS OR DEDUCTION F

ANOTHER TYPICAL EXAMPLE IS WHEN THE BUYER AND THE


SELLER SHARE THE ADVANTAGES / DISADVANTAGES IN COST
SAVINGS OR OVER RUNS IN FIXED RATIO
THE FEATURE OF CPIF IS THE POINT OF TOTAL ASSUMPTION
[ PTA] . IT OCCURS IN CASE OF COST OVERRUNS WHEN THE
BUYER WILL LIKE TO CUT DOWN RISKS AND TELLS THE SELLER
THAT THE HIT FOR FURTHER OVERRUNS WOULD HAVE TO BE
TOTALLY ASSUMED BY THE SELLER
I.E THE ABOVE MENTIONED SAHRING RATIO OF COST
ADVANTAGES / OVERRUNS WILL NOT WORK BEYOND

THIS

POINT AND THE SELLER HAVE TO ASSUME TOTAL LIABILITY


THEREAFTER

EX TARGET COST IS $13000. TARGET FEE IS $900 . SHARING


RATION IS 75: 25 . PRICE CELING IS $14800 . CALCULATE THA
CTUAL COST ND THE CONTRACTORSS FEE AT PTA

COST REIMBURSIBLE
CONTRACTS
ADVANTAGES

DISADVANTAGES

LESS EFFORT TO DEFINE THE


SCOPE

BUYER HAS ADDITIONAL


RESPONSIBILITY TO AUDIT
SELLERS INVOICES AND COSTS

SELLER DOES NOT HAVE ADDED EXCEPT IN CPIF THERE IS NO


RISK COSTS
INCENTIVE FOR SELLER TO
CONTROL COSTS
BUYER HAS NO IDEA O TOTAL
OUT FLOW
GREATER RISK FOR BUYER
THAN IN FP CONTRACTS

TIME AND MATERIAL [ T&M ] CONTRACTS

APPROPRIATE WHEN BUYER WANTS TO BE IN CONTROL OR


WHEN SCOPE OF WORK IS INCOMPLETE [ EX R&D WORK]
OR IN AN EMERGENCY TYPICALLY IN SHORT DURATION
ASSIGNMENTS
IT IS A HYBRID OF FP AND CR CONTRACTS IN THE SENSE
IT IS PARTLY FIXED [ RATES] AND PARTLY OPEN ENDED
[ THE QTY]
IT REPRESENTS MEDIUM RISK FOR THE BUYER
EX CONTRACT $10 PER MANHOUR + $ 15 PER LINEAR
METRE OF WOOD CONSUMED

TIME & MATERIAL


CONTRACTS
ADVANTAGESTIME

DISADVANTAGES

SIMPLE TO CREATE

EACH BILL OF THE CONTRACT


INCLUDES AN ELEMENT OF
PROFIT INFLATING TOTAL COSTS
HENCE NOT SUITABLE FOR LONG
DURATION FOR VERY HIGH
VALUE CONTRACTS

USEFUL WHEN DURATION IS


SHORT

SELLER HAS NO INCENTIVE TO


CONTROL COSTS

HELPFUL WHEN OUTSIDE


RESOURCES ARE TO BE HIRED

CONSTANT MONITORING IS
REQUIRED

PLAN PROCUREMENT
100%
Buyer

RISK

Seller

0
CPFF

CPAF

CPIF

T&M

FPEPA FPIP

TYPE OF CONTRACT

FFP

100%
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PLAN PROCUREMENTS

OUTPUTS:

Procurement management plan


Procurement statements of work
Make-or-Buy decisions
Procurement documents

Source selection criteria

RFI, IFB, RFP, RFQ, Tender notice etc


Price, Tech. Capability, Past
performance, Production capacity
etc

Change requests
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CONDUCT PROCUREMENTS
INPUTS
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1.
2.
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3.
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4.
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5.
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6.
6.
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8.
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9.
9.

Procurement
Procurement
management
managementplan
plan
Procurement
Procurement
documents
documents
Source
Sourceselection
selection
criteria
criteria
Qualified
Qualifiedsellers
sellers
list
list
Seller
Sellerproposals
proposals
Project
Projectdocuments
documents
Make-or-Buy
Make-or-Buy
decisions
decisions
Teaming
Teaming
agreements
agreements
Organizational
Organizational
process
processassets
assets

TOOLS & TECHNIQUES


1.
1.
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2.

3.
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Bidder
Bidder
conferences
conferences
Proposal
Proposal
evaluation
evaluation
techniques
techniques
Independent
Independent
estimates
estimates
Expert
ExpertJudgment
Judgment
Advertising
Advertising
Internet
Internetsearch
search
Procurement
Procurement
negotiations
negotiations

OUTPUTS
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6.
6.

Selected
Selectedsellers
sellers
Procurement
Procurement
Contract
Contractaward
award
Resource
Resource
calendars
calendars
Change
Changerequests
requests
Project
Project
management
managementplan
plan
updates
updates
Procurement
Procurement
documents
documents
updates
updates

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CONDUCT PROCUREMENTS

INPUTS

Procurement management plan

Procurement documents

Source selection criteria

Qualified sellers list

Seller proposals

Project documents

Make-or-Buy decisions

Teaming agreements

Organizational process assets


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CONDUCT PROCUREMENTS

TOOLS & TECHNIQUES

Bidder conferences

Proposal evaluation techniques

Usually Proposal evaluation is defined


by Buyers procurement policies

Independent estimates

To ensure clear & common


understanding among all bidders (some
times known as Pre-Bid Conference)

Such as IED estimates done by Buyer

Expert Judgment

TNC/PNC Committees
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CONDUCT PROCUREMENTS

TOOLS & TECHNIQUES (Cont)

Advertising

In Selected News Papers, In Web Sites

Internet search

Procurement negotiations

Technical Negotiations
Price Negotiations
For simple negotiations often buyer
sets preset Terms & Conditions which
are to be accepted by seller (Nonnegotiable)
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CONDUCT PROCUREMENTS

OUTPUTS
Selected sellers
Procurement Contract award

A Contract is a mutually binding legal agreement


that obligates the seller to provide the specified
products, services or results, and obligates the buyer
to compensate the seller
Major components of Contract includeSOW/Deliverables, Price, Quantity, Delivery
Schedule, Payment Terms, Acceptance criteria,
Warranty, Penalty clause like LD, Gen.T & C of
Buyers Procurement etc

Resource calendars
Change requests
Project management plan updates
Procurement documents updates
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ADMINISTER PROCUREMENTS
INPUTS
1.
1.
2.
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3.
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4.
4.
5.
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6.
6.

Procurement
Procurement
documents
documents
Project
Project
management
managementplan
plan
Contract
Contract
Performance
Performance
reports
reports
Approved
Approvedchange
change
requests
requests
Work
Workperformance
performance
information
information

TOOLS & TECHNIQUES


1.
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7.

Contract
Contractchange
change
control
system
control system
Procurement
Procurement
performance
performance
reviews
reviews
Inspection
Inspection&&audits
audits
Performance
Performance
reporting
reporting
Payment
Paymentsystems
systems
Claims
Claims
administration
administration
Records
Records
management
management
system
system

OUTPUTS
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1.
2.
2.

3.
3.
4.
4.

Procurement
Procurement
documentation
documentation
Organizational
Organizational
process
processassets
assets
updates
updates
Change
Changerequests
requests
Procurement
Procurement
management
managementplan
plan
updates
updates

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ADMINISTER PROCUREMENTS

INPUTS
Procurement documents
Project management plan
Contract
Performance reports

Seller- Developed technical Docs in


accordance with Terms & Conditions
Seller Performance reports

Approved change requests

Modifications to T & C of contract as


approved by Integrated Change Control
Process

Work performance information

Quality performance, Cost Performance,


Payment status etc.

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ADMINISTER PROCUREMENTS
TOOL & TECHNIQUES

Contract change control system

Procurement performance reviews

Structured Reviews to monitor seller


performance (progress) on Scope,
quality, cost with respect to contract

Inspection & audits


Performance reporting
Payment systems
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ADMINISTER PROCUREMENTS
TOOL & TECHNIQUES
Claims administration

Contested Claims such as


Compensation Claims,
disputes/Appeals etc

Records management system

Retrievable archive of Contract


documentation & Correspondence
(Hard & Soft forms)- Part of
Project Management Information
System.

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ADMINISTER PROCUREMENTS
OUTPUTS

Procurement documentation

Organizational process assets


updates

Change requests

Procurement management
plan updates

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CLOSE PROCUREMENTS
INPUTS
1.
1.
2.
2.

Procurement
Procurement
management
managementplan
plan
Procurement
Procurement
documentation
documentation

TOOLS & TECHNIQUES


1.
1.
2.
2.
3.
3.

Procurement
Procurement
audits
audits
Negotiated
Negotiated
settlements
settlements
Records
Records
management
management
system
system

OUTPUTS
1.
1.
2.
2.

Closed
Closed
procurements
procurements
Organizational
Organizational
process
processassets
assets
updates
updates

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CLOSE PROCUREMENTS
INPUTS

Procurement management plan

Procurement documentation
TOOLS & TECHNIQUES

Procurement audits

Negotiated settlements

Process audit of Whole


procurement
Settlement of claims, disputes etc

Records management system

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CLOSE PROCUREMENTS
OUTPUTS

Closed procurements

Buyer formally authorizes closer


of Contract after acceptances of
all deliverables & settlement of
all issues

Organizational process assets


updates

Documentation of lessons
learned.
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THANK YOU

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